Credit Crunch Bail-Out

According the Mr. Practical at Minyanville, "World-wide central banks injected $383 billion in credit to the world’s banks just in August. That is just an amazing number. It is unprecedented."

Of course, Mr. Practical is right. World central banks are in a precarious position. All of this money sloshing around is likely to find some places to blow up, and the most likely places are in the US and Great Britain, where the excesses and risk-taking have been phenomenal.

What does this all mean? According to Mr. Practical (and I've noted this as well), the stock markets have seized up and are being kept afloat by the unprecedented infusions of capital from central banks, who may, when this all unravels, face one of two conditions: 1. their own bankruptcy (highly probable in the US), or 2. Ownership of vast portfolios of stocks (the end of free markets).

Neither of these conditions is desirable. Worth noting is yesterday's move by the Senate Finance Committee to raise the debt limit to nearly $10 trillion. So, maybe the federal government will buy up most of Wall Street's troubled stocks with debt, sell it to China and thus avert a bloody war by allowing foreigners to take over all US assets without firing a single shot. That's a very nifty strategy by our nitwit Congress and sly fox administration, though overtly treasonous. They should all be in jail.

Interestingly, today's outsize market gains were led by two of the most debt-ridden companies on the planet, General Motors (GM) and Countrywide Financial (CFC). GM was up 10% on news that UAW president, Ron Gettelfinger, agrees in principle to the creation of a multibillion-dollar health-care trust fund. Countrywide was up 13% on news of another round of emergency funding, to the tune of $12 billion. Neither the names of the creditors nor the terms of the loan were disclosed.

Dow 13,424.88 +133.23; NASDAQ 2,601.06 +8.99; S&P 500 1,483.95 +12.39; NYSE Composite 9,678.12 +79.39

Technology, located mostly in the NASDAQ, lagged the market badly as the Dow Jones Industrials led the way. As large as the gains may have seemed, the breath of the market was rather thin. Advancers held a 5-4 margin over declining issues. New lows continued to lead new highs, 207-155. The fundamentals of this market still are not positive despite a couple of solid sessions this week.

Keeping some perspective, oil was up only 18 cents, though it cracked a new all-time high, closing at $80.09. The gold rally has stalled for the time being, with the yellow stuff down $2.80 to $717.90. Silver eased 11 cents to $12.68. If you're looking to bet on the metals, silver is well undervalued in relation to cousin gold, though price pressures from manufacturers could have some say in keeping the price down for now. It's still a very solid hedge position at current levels and I wouldn't chide anyone buying at any price under $13.25.

It also should be pointed out that trading was light on major exchanges. Key events to keep in mind are tomorrow's nationwide stand down by the Air Command and Tuesday's Fed meeting. There may be major news on the political front stemming from tensions in the Middle East, which have reached a boiling point not only on Capitol Hill, but throughout the region.